Audit raps handling of student accounts in Mecklenburg

By Susan Kyte
Mecklenburg Sun

SoVaNow.com / October 23, 2013

An independent auditor that reviewed student activity funds at Mecklenburg County schools found that the accounts have been used by administrators to pay for such items as new classroom furnishings and employee salaries, “in direct noncompliance” with state law and state and local policies that govern the use of such funds.

In an Aug. 26 letter addressed to Mecklenburg County School Board Chairman Robert Puryear, the auditing firm — Creedle, Jones & Alga, P.C. — found “several areas of weakness and exceptions to established accounting and internal control policies” by the Central Office. Among other alleged missteps, the auditors wrote, the administration tapped the accounts to advance the salary of a basketball coach and buy new desks and chairs for students to ease adoption of the Project Based Learning curriculum in Mecklenburg schools.

According to the Virginia Department of Education, student activity funds exist to take in revenue from extracurricular activities such as athletic outings, club dues and any other activity involving students, staff or facilities. By the same token, disbursements should be “solely in accordance with the purpose for which such funds are collected,” according to the DOE.

That’s not what happened in Mecklenburg County during the most recent budget year, the Creedle, Jones & Alga auditors write. In addition to paying cash out of the funds for items not covered by state guidelines, the school-level accounts were also used as conduits by the Central Office whereby each school bought new classroom furnishings and then received reimbursements for the amount spent. The audit findings letter characterizes the practice as “not consistent with the directives as issued by the Department of Education.”

Superintendent of Schools Dr. James Thornton, who is cited in the letter as having personally directed the purchases of PBL-friendly furnishings through the student activity funds, said Tuesday that large disbursements from and receipts into the accounts are not unusual, and that school personnel keep close track of the flow of money to ensure funds are spent as intended.

“I do believe the revenue and expenditures are accurate,” Thornton wrote in an e-mail response to questions about the auditors’ assertions. “I believe our school bookkeepers and the principal who is in charge of the student activity fund in their respective school do a very good job of managing the funds.” Thornton also suggested the funds offer flexibility to meet school needs: “For example, we often will have a school write a check for a conference or hotel and then reimburse their student activity fund because we can only write checks once a month.

“I directed Ms. Somerville and Mrs. Rogers [Central Office administrators] to work with principals to order the furniture that they wanted for their schools. I further directed them to check with Donna Garner to ensure that we follow procurement policy. Mrs. Garner’s role is the finance supervisor and she is a certified public [accountant],” he wrote.

By contrast, Creedle, Alga & Jones, which audits the books under contract for the School Board, pointed to instances to suggest “that the control policy is not a priority for accuracy in the reporting of data.” The letter adds, “Dr. Thornton created an expectation with the adoption of the Red Book” to unify accounting procedures across the system, “but his actions appear to be contrary to the expectations of the staff.”

As a counter, the auditors recommend that the School Board adopt a whistleblower policy — to clarify “that employees who are aware of possible wrongdoing within the organization have a responsibility to disclose that information to appropriate parties,” and also to ensure that prospective whistleblowers “will be protected from adverse employment consequences” when providing information.

The letter does not cite any instances of employees who may have faced retribution for challenging the decisions of the Central Office.

The letter delves at length into one consequence of buying furnishings on a school-by-school basis — its effect of breaking up one large transaction (the auditors say the cost of the new furnishings totaled $91,784.90) and creating many separate transactions that fall outside the bid requirements of the Virginia Public Procurement Act. Purchases exceeding $50,000 in the aggregate require competitive bidding; the lesser amounts paid out by individual schools “may be approved by the Superintendent or his designee on the ‘open market’ basis,” the auditors note.

“Based on our interviews conducted with the accounting staff at the schools and the Central Office, directives were made by the Superintendent to purchase the furniture at the individual school level,” the audit letter states. “It appears that through this purchase method, there was the intent to mitigate the more stringent requirements of the competitive bidding process” as individual purchases were transacted. The letter notes that staff were instructed to obtain “three quotes” from vendors, which would be sufficient to meet the minimum procurement guidelines for small purchases; “however, the MCPS policy indicates the purchasing levels are to be based on the aggregate amount of the purchases.”

The auditors further note that furnishings are properly considered a capital purchase, and handling the acquisitions through student activity funds is “not consistent with the directives as issued by the Department of Education, which states that all in the Student Activity Funds should be used for the benefit of students.”

This is the second year in a row where the auditors, while reviewing the Student Activity Funds found that capital purchases were made through those accounts. It is also the second year in a row that the auditors issued a finding against the school board. “These types of purchases are considered capital purchases related to the building and structures of the individual schools,” the letter notes adding that “Therefore the purchases through the Student Activity Funds are in noncompliance with the Act [Virginia Procurement Act]. The purchase of capital assets is a repeat finding from the previous year’s management letter.”

In addition to making unauthorized purchases through the accounts, the auditors also found that the Student Activity Fund at Bluestone High School was tapped to write a Nov. 30, 2012 check for $1,923.53, with the notation, “advance on Basketball Coach’s pay.” Three months later, auditors noted that, “a deposit was received from Mecklenburg County School Board,” for the same amount, which carried the notation “reimbursing Bluestone Senior High School.

“This type of transaction is in direct noncompliance with [established school procedure],” the auditors note. “The School Activity Funds should not be used for this type of transaction as they should not be ‘lending’ out money for any reason.”

“Our discussions with the staff indicated that they knew it was not proper for them to issue this check but that they had been directly told to do so by the Superintendent of Schools,” the letter continues. “The staff should never be directed to circumvent accounting guidelines or controls. While the funds were ultimately reimbursed by the School Board Central Office, it is still considered an act of noncompliance.”

The firm noted another discrepancy, again while auditing the Bluestone High School Student Activity Fund — “a shortfall of $786 [in the account] which cannot be explained.”

In the fall of 2012, Bluestone High School students solicited advance orders for a Football Pepsi fundraiser, selling cases of soda at $20 per order. The money was to be collected before the drinks were ordered, and all monies collected, along with information on each purchaser, was “to be returned to the coach.” The school purchased 143 cases of soda, for a total cost of $2,087.50, and was in line to collect $2,860 with the volume of orders received. Instead, Bluestone received $2,074 that was deposited.

“This leaves a shortfall of $876.000 which cannot be explained,” the auditors’ letter notes.

To avoid a repeat, the letter states “there should be controls in place that assure a complete reconciliation of all fund-raising activities.” The auditors further suggest the school’s athletic director should supervise fundraisers.

When asked about the letter at the Monday night meeting of the School Board, board chairman Robert Puryear, the named recipient, had no comment.